Annotation World Bank Discussion Paper No. 375.Social funds have proved to be important instruments for reaching the poor using community-based strategies. Yet, while there have been innovations in the design of these funds, the projects are much less participatory and demand-oriented than is commonly believed. This paper examines the extent to which social fund subprojects are designed to support community participation, demand orientation, and investment in local organizational capacity to achieve sustainability at the community level.

Most of the 60 developing countries that have established social funds are decentralizing their governments as well. But the question of how to tailor social funds - originally a highly centralized model - for a decentralizing context is scarcely addressed in the literature. This paper examines the implications of decentralization for the institutional design of social funds step-by-step through the project cycle. The topic is doubly important because a social fund can increase its effectiveness and the sustainability of its investments by reorganizing internal processes to take advantage of the political and civic institutions that decentralization creates. Local government has an informational advantage in local needs and characteristics (time and place), whereas the fund will have access to better technology and knowledge of sectoral best practice. The key is to create institutional incentives which best combine these relative advantages, leading to better investments. I describe a quick and easy system by which funds can conduct routine appraisal of project success, which can in turn inform staff performance evaluations, improve internal procedures, and even permit a performance ranking of local governments. While experience has shown that SFs can help strengthen local governments, strengthening central institutions should be dropped as a central SF goal.

This paper reports on proceedings from an international workshop on social funds, held on May 21-24, 1997, in Washington, DC. The objectives of the workshop were to take stock of a decade's implementation experience of social funds with a view to assessing their impact on poverty reduction; establish a broad consensus on their main achievements, weaknesses, and risks; generate a set of recommendations for improving existing operations as well as for the design of future social funds; and facilitate the integration of international and regional networks of social funds.

This paper examines the design of social investment funds (sifs) and explores the ways they affect agents' incentives to propose, select, and implement good projects. Compared with other forms of decentralized service provision, sifs possess features of administratively delegated authority and deep political devolution. Where existing political institutions fail to deliver assistance to vulnerable groups, a well-designed sifs may represent a useful administrative alternative. This article reviews several features that provide incentives for both sifs staff and project beneficiaries and concludes with practical guidelines for designing and appraising social investment funds.